LOREAL_Registration_Document_2017

Corporate governance * RISK FACTORS AND CONTROL ENVIRONMENT

The management standards describe how the rules should be applied from an operational standpoint. They not only specify the rules applicable to the valuation of certain significant accounts in the balance sheet and the income statement, but also the controls and validations applicable to the key processes. The management standards are regularly supplemented and are thus part of the continuous improvement process. The purpose of this work is both to take action in response to the findings of the Internal Audit Department and to cover the areas corresponding to the accounting and financial risks of subsidiaries. This work has made it possible to bring our approach more closely into line with the recommendations set out in the Application Guide relating to Internal Control of accounting and financial information of the AMF Reference Framework. Organisation and security of information systems Decisions with regard to the selection of software that is adapted to the Group’s financial and accounting requirements are made jointly by the Operational Finance Department and the Information Systems Department. At the level of information systems, the teams work on strengthening the procedures for the separation of tasks and improved control of access rights. Tools have been made available to enable them to ensure that access rights comply with the Group’s rules. Management tools The system for monthly reporting of the various economic indicators enables the monitoring of the evolution of the performance of each subsidiary in a continuous and harmonised manner. It also enables assurance to be obtained that such performance is in line with the objectives set. The reporting and consolidation system, used by all entities, ensures the consistency and reliability of figures at the level of each subsidiary through blocking controls that operate before the financial data is uploaded to Group level. In this regard, the operating profit and loss account by destination, which is common to both management and general accounting, contributes to strengthening the control of accounts in the financial statements through the use of a single reference framework. In addition, the Group’s organisation, which is based on reporting from each subsidiary that is provided directly by the countries to the parent company, without any intermediate aggregates for the vast majority of the subsidiaries, enables optimisation of the data transfer and the completeness of the information, and in particular enables the checking of the accuracy of the exchange conversion rates. The Managing Director and the Finance Director of each subsidiary make a joint commitment with regard to the quality, reliability and completeness of the accounting and financial information they have prepared and sent to the Group’s Operational Finance Department, through a representation letter that they jointly sign.

EU regulation 537/2014 on statutory audits, and are based on the report by the working group on the Audit Committee published by the AMF on 22 July 2010. Processes used to prepare 2.8.3.3. accounting and financial information Operational processes contributing to accounting figures All of the processes that contribute to accounting figures, particularly sales and purchases, and inventory, fixed asset, payroll and treasury management are covered by specific procedures, follow-up checks and rules for validation, authorisation and booking operations. The accounts closing process is governed by precise instructions and is based on a detailed time schedule circulated to all the subsidiaries to make sure that deadlines are met and the financial statements are prepared in a consistent manner. In this regard, the Group has introduced two hard closings (anticipating the work involved in the closure of the financial statements) in May and November which make it possible to better anticipate and speed up closing times. For the preparation of the consolidated financial statements, validation procedures apply at each stage of the process of reporting and processing information. Their purpose is to verify in particular that: inter-company transactions are correctly adjusted and s eliminated (these are reported on a monthly basis); consolidation operations are checked; s accounting standards are correctly applied; s the consolidated published accounting and financial data s are harmonised and properly determined and general accounting data and management reporting figures used in the preparation of the financial information are consistent. Financial communication Managers in charge of Financial Communication prepare a precise timetable for publication of up-to-date information on the Group to the financial markets. This timetable complies with the requirements of market authorities. These managers ensure, with the assistance of the Legal Department, that communications are made within the required deadlines and in accordance with laws and regulations, which they constantly monitor. Their role is also to publish, precisely and accurately, the information provided by the Operational Finance Department and the Legal Department. All material information provided to the financial community reflects with truth and transparency the situation and activities of the Group and the process is carried out in accordance with the principle of equal provision of information to all shareholders. The Statutory Auditors All accounting and financial information prepared by consolidated subsidiaries is subject to a limited review at the time of the half-year closing process and to a full audit at Closing of the accounts, consolidation and management reporting information

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The Audit Committee

The role and missions of the Audit Committee are described above. These tasks are in compliance with European regulations and, in particular, Directive 2014/56/EU and

REGISTRATION DOCUMENT / L'ORÉAL 2017

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